Good afternoon, and thank you for joining today's Pinterest Fourth Quarter and Full Year 2023 Earnings Call. My name is Kate, and I will be the moderator for today's call. At this time, all lines are in a listen-only mode. And there will be an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the call over to your host, Neil Doshi, Head of Investor Relations at Pinterest. You may proceed.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the fourth quarter and full year ended December 31, 2023. I am Neil Doshi, Vice President of Investor Relations for Pinterest. Joining me today on the call are Bill Ready, Pinterest CEO; and Julia Donnelly, our CFO. We are providing a slide presentation to accompany our commentary, and this conference call is also being webcast. Please refer to our Investor Relations website at investor.pinterestinc.com to find today's presentation, webcast and earnings press release. Some of the statements that we make today regarding our performance, operations and outlook, may be considered forward looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. In addition, our results, trends and outlooks for Q1 2024 and beyond are preliminary and are not an assurance of future performance. We are making these forward-looking statements based on information available to us as of today, and we expressly disclaim any duty or obligation to update them unless required by law. For more information about risks, uncertainties and other factors that could affect our results, please refer to our most recent annual report Form 10-K and quarterly report on Form 10-Q filed with the SEC and available on our Investor Relations website. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is included in today's earnings, press release and presentation, which are distributed and available to the public through our Investor Relations website. Lastly, all growth rates discussed in today's prepared remarks should be considered year-over-year unless otherwise specified. And now I'll turn the call over to Bill.

Thanks, Neil. Good afternoon, and thank you for joining our fourth quarter and full year 2023 earnings call. In Q4, our team executed well against our strategic priorities, growing users and engagement, gaining further traction with our lower funnel advertising offerings and delivering on operational efficiency. Our efforts to grow users and deepen engagement continue to yield strong results. Global MAUs hit another all-time record of $498 million, growing 11% accelerating from last quarter and growing sequentially in all of our geographic regions. Q4 revenue of $981 million grew 12%, marking continued double-digit revenue growth in the second half of this year. And while growing revenue and engagement, we continue to demonstrate operational efficiency and disciplined expense management, resulting in Q4 adjusted EBITDA of $365 million, or a 37% margin up more than 1400 basis points from last year. Our strong product delivery in Q4 and throughout 2023, with investments focused in lower funnel offerings like mobile deep linking, shopping ads, API for conversions and most recently direct links are delivering sustained ROI improvements for advertisers. This is leading to advertisers growing their budgets with us and has resulted in further acceleration so far in Q1, which is reflected in our guidance that Julia will describe in further detail later in the call. Before I discuss Q4, I'd like to reflect back on the progress we made over the past year. We entered 2023 with a backdrop of a challenging macroeconomic environment and a weak digital ads market. However, we delivered strong execution against the strategic priorities we laid out during the second half of 2022, which enabled us to grow through the downturn and get back to double-digit revenue growth in the back half of 2023. During this period, we made significant investments in AI that drove improvements in…

Thanks, Bill, and good afternoon, everyone. Today, I'll be discussing our full year and fourth quarter 2023 financial results and provide an update on our preliminary first quarter 2024 outlook. All financial metrics, except for revenue will be discussed in non-GAAP terms unless otherwise specified, and all comparisons will be discussed on a year-over-year basis unless otherwise noted. Before I dive into the details of the quarter, I want to echo Bill's sentiments about the progress we made in 2023 and how far we've come in a short period of time. Last year, we generated $3.1 billion in revenue, growing 9% with revenue reaccelerating to double-digit growth in the back half of the year. We've been strategic with our investments that enabled us to invest in high ROI projects such as AI for content recommendation and ads and accelerating the pace of innovation across the board. We did this while driving efficiencies with our infrastructure spend and keeping our total non-GAAP expenses in 2023, roughly flat compared to 2022. This allowed us to deliver $683 million of adjusted EBITDA or a 22% adjusted EBITDA margin, representing 660 basis points of year-over-year margin expansion well above our initial goal at the start of 2023 of 200 basis points. Finally, at our recent Investor Day in September, we shared our long-term outlook with a revenue CAGR in the mid to high teens and EBITDA margins expanding to the low 30s percent range in the next 3 to 5 years. Our recent results and our focus on executing against our strategic priorities sets us up well to achieve these targets over this time frame. Now I'll discuss our fourth quarter results. We ended the year with 498 million global monthly active users, representing 11% growth. This is the strongest growth we've seen since…

Thanks, Julia. I'm proud of all we were able to achieve in the last year, and I'm even more excited for the year ahead. I want to thank our teams at Pinterest, our advertising partners and all the people that come to Pinterest to find inspiration in the shop. And with that, we can open the call up for questions.

Thanks so much for taking the question, and thanks for all the details in the prepared remarks. I want to go back to some of the comments more broadly on the advertising environment because I think generally investors and analysts have heard a variety of messages about the health of brand advertising and direct response advertising and certain geographic exposure over the last sort of two weeks. Can you just go into a little bit more detail on what you saw in Q4 and how you sets you up for cumulative advertising budget conversations into Q1 and through the remainder of 2024? Thanks so much.

Yeah. Thanks, Eric. So we also see the broader ad market as stable to improving. For us, Retail was the fastest growing segment. And we're seeing across the entire ad industry, performance matters more than ever, and we're winning on that front. We're driving more performance to advertisers than ever before. As I mentioned in my remarks, large advertisers are opening up their performance budgets for us. Doubling our clicks sent to advertisers year-on-year, a strong indicator of not only the value that we have already created, but of how much more value capture is still left in front of us on that. So we also see that improvement, but performance is the name of the game, and we've made a major progression on performance over the last 18 months. And so those are the comments I'd make offer because Julia wants to add any more on some of the other things that we saw in the market there.

I'd say the only other thing we called this out in the script, Eric, is we did see not a significant impact from the Middle East, if we talked about on the prior earnings call. So that was a very temporary impact to us. It was fully recovered by the time we got on the last call. So that to us was not a major headwind, given the fact that we are making this transition to more performance budgets, as Bill alluded to. We did see a little bit of tail off in December from the food and beverage category, which is consistent with the public commentary that we've seen elsewhere, we're seeing that headwind continue into Q1. But in general, Q1 is off to a really, really good start, and we feel very confident in the acceleration that we're seeing and guiding to in Q1, which is a result of a lot of the lower funnel investments that Bill was alluding to earlier.

Great. Thank you.

Thank you. The next question will be from the line of Ross Sandler with Barclays. Your line is now open.

Thanks, guys. Question on the Google partnership. So Bill, everybody can see that the ARPU gap between Europe and U.S. for you guys is about twice as big as Meta. So can you talk about, I guess, the difference between the Google partnership and what you have going with Amazon right now? And is the mix of categories outside of retail that Google brings to the table going to - could that be more meaningful in terms of your ARPU improvement? And are you allowed to use any of those non-retail categories in the U.S. from Google or not? Thanks a lot.

Thanks, Ross. Great question. And as we've talked about on the international front, we see Pinterest significantly undermonetized across the board. But the most undermonetized internationally. We have approximately 80% of our users outside the US, but only 20% of our revenue. So as we shared at our Investor Day, we think that's a meaningful opportunity for us to increase that ARPU internationally. At Investor Day, we talked about how we would leverage both 3P, as well as resellers and other partnerships to help us advance there. So, we're quite excited about the partnership with Google as particularly for those unmonetized markets, we think it can help us to accelerate the ARPU journey for those markets and bring more relevant content and actionable content to users in those markets. As we've demonstrated that our users have a commercial intent on our platform, the ads can be great content. You've seen that in our increase of impressions, ad impressions, while also increasing engagement, demonstrating that the ads can be great content when they use it in a commercial context, we think it will also be additive from that perspective as well. Your question on Amazon, we feel really good about the way the Amazon partnership is scaling also. And there are international markets that can be in play there as well. So as we've talked about the 3P strategy overall, we think about 3P as a way to fill in gaps in our auction and bring more relevant content to our users. And so we're quite pleased with the way the Amazon partnership is progressing. And the Google partnership with the focus on our unmonetized or undermonetized international markets, we think will be quite additive as well.

Thank you. The next question will be from the line of Rich Greenfield with Lightshed Partners. Your line is now open.

Hi. Thanks for taking the question. I'm seeing more and more video ad units when I'm on Pinterest, just scrolling through the feed. I guess the question, Bill, is when you talk about AI and machine learning, I guess, how should we think about how your algorithms and systems are figuring out whether to deliver a static image ad or a video ad for each available ad opportunity. And then just any comments on sort of the conversion of ROEs [ph] that you're seeing for video ads versus the static ads, any trends? Or any color you can give us would be really helpful? Thank you.

Sure, thanks. Thanks, Rich. So video remains more than 30% of our revenue. It's been a bright spot for us on the platform that we are driving really great monetization on video. And we've talked about how much AI is a core competency for us and how much that has driven increases in relevancy on the organic side, as well as improvements on the ad side as well. Our model being 100 times larger than they were a year ago, as we talked about last quarter. And so one of the things we're seeing from that AI-driven improvement in relevancy is a really good ability to discern what's relevant for which user at the right moment in time, and that includes both video and still images. And so we're seeing that work quite well in our fee, the balance between video and still imagery and I think you see it reflected quite well in our progress with users that we just put up our best user growth quarter since Q1 of 2021. We're deepening engagement per user. Gen Z is now our largest fastest-growing demographic. They're very video-centric as well. We are winning with Gen Z. So I think those are all the things I'd point to that say we're really getting the right balance of still imagery versus video with really good multi mobile capabilities and our AI-driven relevancy on those things.

And when I look at Gen Z, is it fair to say that they're seeing an even higher percentage of video then?

Gen Z, the demographic tends to be more video-centric and as we've talked about, we are performing quite well with Gen Z. But interestingly, it's not just video. When we see things like I talked about collages in my comments, we are creating entirely new content types on Pinterest like collages where users can curate, and they've done that historically on board, but collage as now make that an even deeper level of granularity where people can put together outfits and room designs at much greater granularity driven by AI recommendations on those things. And so we're seeing Gen Z really engage deeply with that as well. And as I mentioned in my remarks, not only is that driving engagement it's driving shopping behaviors of 75% plus of those collages that are created contain shoppable products. And so quite pleased with how our team leveraging AI is finding great ways to bring new content types to the right users at the right moment in time, particularly around commercial intent.

Thank you.

Thank you.

Thank you. The next question will be from the line of Doug Anmuth with JPMorgan. Your line is now open.

Thanks for taking questions. I have two. You talked about doubling down on momentum in '24. I was just curious if you can talk about any key priorities for the year that really stand out? And is there any change to how you're thinking about profitability in '24? And then just quickly on China advertiser spending. Any color on exposure levels and perhaps how it trended in 4Q? Thank you.

Sure. Thanks for the question, Doug. I'll take that one. So overall, we're feeling really good about the progress that we're making on our 3 to 5 year outlook, and we talked about at Investor Day, having a steady ramp to that low 30-ish percent EBITDA margin range in the next three to five years. As I said in my prepared remarks, we do intend to expand margin again in 2024, but at a more modest level than the 660 basis points that we delivered in 2023. So we are planning to drive more margin expansion and see operating leverage in the business in 2024. On an absolute dollar basis in terms of where the areas where we're increasing our levels of investment, we plan to focus in our R&D area, tying to head count additions primarily in AI, both for - to benefit our users and our advertisers. On the sales and marketing line, we also anticipate adding to our sales organization with a focus on enhanced technical selling capabilities and also expansion of some frontline sellers in our international markets as well. To your question about China-based e-commerce retailers, we are seeing some benefit from that category of advertiser in Q4. That is a nice contributor for us. But it is by no means the only contributor. We are seeing strong growth in the retail category that is broad-based, including several other major retailers aside from those categories in China. And so we think we're a great fit for those retailers. And I don't think we're as exposed there as some of our other peers may be.

Got it. Thank you, Julia.

Thank you. The next question will be from the line of Mark Mahaney with Evercore. Your line is now open.

Thanks. I wanted to ask about the Q1 outlook. And is there a way to peel back the different drivers of this acceleration between kind of the core product improvements than the Amazon, maybe the Google contribution coming in? And then, I guess, other things like the extra day in the quarter, like if you were to peel apart those, maybe you can't quantify, but directionally, which of those has the biggest impact on driving the acceleration, which is a second, which is third? How would you triage those? Thank you.

Thanks for the question, Mark. As we talked about at our Investor Day, we've got multiple ways to win here. We've talked about driving better lower funnel performance. We are driving forward on that, performing quite well on that front. We talked about international in 3P. We see those contributing quite nicely as well. And so it is very much a multipronged approach, and we see really solid performance across each of those very much in line with the plans we laid out at our Investor Day. So, in the same way that we talked about multiple ways to win at Investor Day. We see progress on every single one of those fronts, and we see it as a balanced approach, and we continue to see that way as we look into Q1 and next year.

Thank you, Bill.

Thank you. The next question will be from the line of Ron Josey with Citigroup. Your line is now open.

Great. Thanks for taking the question. Bill, I wanted to ask maybe bigger picture. You talked about larger retail advertising, just to allocate advertisers allocating more performance budgets to the Pinterest as you evolve from experimental. Just talk to us about the process here to get to more performance ad budgets to be that line item and how this fits in your commentary on working with agencies and incentives? And then a quick follow-up on just Mark's call, just Mark's question, just there, Julia. Any insights on just Easter adding extra -- with Easter being earlier this year and/or the extra day in the quarter? Thank you.

Thanks for the question, Ron. So as we've talked about before, we've been on a major transformation from a primarily brand ad-driven platform a couple of years ago to a performance-driven platform today. And we shared at Investor Day two thirds of our revenue now coming from the lower funnel. So we are well down that path on that transformation. At the same time, we are continuing to launch major improvements to our performance ad product and we're on an adoption curve there. So for example, we launched Mobile deep links to GA sort of middle of the year last year. And then we are still seeing more and more retailers not only adopt that, but then shift budget to us as a result of that. With direct links, we launched that as we were right into the holiday shopping season when most of the retailers are sort of hunkered down and that really making major shifts. So we're able to deliver that without the advertiser doing work, and we doubled the number of clicks we sent to advertisers year-on-year. And as we're going into Q1, we're seeing that now start to show up in budget allocations moving to us. But we think we have a lot more of that to go. And to give you a little bit more sense of this, if you looked at our lower funnel performance tools, things like conversion API, mobile deep links, direct links, clean rooms. At the start of last year, we had roughly 2% of our revenue coming from those who have at least three of those lower funnel tools. By Investor Day, that was 13% of our revenue coming from those that had at least three of those lower funnel tools. By the end of the year, it was 23% of our revenue coming from those who had at least three of those lower funnel tools. So that gives you a sense for how we're making strong progress, but also to my comments around how there is a lot more of the value capture still in front of us from products that we have already launched that we know are performing well. And of course, we are continuing to innovate there as well. So a lot more to come on that.

And then maybe I'll just add to that. As Bill was talking about, we're seeing nice growth from retail, in particular, and that's really kind of already capturing some of the value from some of the investments that we made over the course of 2023. One additional stat I'll share, this is on an updated version of a stat that we had last year, which is that those who have adopted our API for conversions are actually seeing retailers who adopt our API for conversions are actually seeing year-over-year growth in the 30% range compared to non-adopters of our API for conversions who are declining mid-single digits. So another further data point to support the growth that we're seeing and the budgets that are coming our way as we're delivering sustained ROAS [ph] performance. To your question on Q1 and kind of puts and takes in Q1. Just a reminder again that our acceleration that we're guiding to in Q1 is off the back of a stable comp from last year. There are kind of small puts and takes and a small tailwind from timing of Easter or addition of leap day this year, but those are by no means the major driver. The major drivers are the strength that we're seeing in the retail category tied to large advertisers, the emerging contribution from 3P and some of the other factors that we've discussed today on the call. So overall, this is us doing what we said we would do at Investor Day and delivering on some acceleration in capturing value from all of the investments that we've made over the last year, and we feel really good about the growth that we're seeing, the sustainability of that growth and the progress that we're making against those goals.

Thank you, Julia. Thank you, Bill.

Thank you.

Thank you.

The next question will be from the line of Dan Salmon with New Street Research. Your line is now open.

Great. Thanks. Good afternoon, everyone. So maybe could we dig in a little bit more on your accelerating monthly active user growth this quarter. You talked about success with Gen Z, any additional quantification you could put around that would be great. And then maybe any color around other demographics, like, for example, men and then we can see the growth by region, obviously, but any particular countries that you would call out for where you're seeing particular strength in our growth? Thank you.

Certainly, on Gen Z, we've talked about it's more than 40% of our user base now. And there's multiple factors driving the improvement in users and engagement at its core. We're helping users find more of what they're interested in, on Pinterest, helping them take action on it and delivering a positive environment for them that they see as an oasis away from the toxicity of much of the rest of social media. This gets cited to us directly particularly by Gen Z users. And so we are carving out a unique space for ourselves that is quite different from the rest of social media that is more about users investing in themselves. Things are additive to their lives versus sort of viewing the lives of others or that where they feel like they have to perform for others. And so it is a really unique and ownable space, and we're seeing that really cut through with users and again, with advertisers as well to see it as a brand-safe environment. On geographies, as you mentioned, you can see the geographic growth there. The couple of things I'd mention are just on U-Can. We saw, again, another nice, really nice growth quarter there in our mature markets. I've been saying this for the last six quarters. Our mature market is much more about driving depth of engagement, and we feel really good about the depth of engagement that we're driving, particularly actionability on to the platform. You see that reflected in the increase in clicks, where users are taking action on our platform, a big question 18 months ago. Users not only come here with intent, but they are taking action. And internationally, the big question there has always been the monetization. And we have nice momentum there, but we have a lot more that we can do, and we're quite excited about our first-party selling efforts, the things we can do with reseller partners and agencies. We're making progress on those fronts and then bring 3P into the mix there with Google, particularly for those unmonetized and undermonetized markets. We think there's a lot we can do that not only drives the monetization per user, but again, drive that actionability for the user that we think can help further enhance the user engagement for users in those international markets.

Only other thing I'd add, Dan, to your question on sort of the acceleration that we've seen in MAU growth, which were proud of. As Bill mentioned, it is also carrying through in terms of depth of engagement. And so were continuing to see our mobile app MAU growth accelerate even faster than our total MAU growth. And as we look at total impressions, which is one of the drivers of ad impressions, but total impressions that continues to grow even faster than our MAU growth as well. So continue to see nice trends there consistent with some of the longer-term trends we shared at Investor Day.

Very helpful. Thank you.

Thank you. The next question will be from the line of Kenneth Gawrelski with Wells Fargo. Your line is now open.

Thank you, very much. Just two, if I may, real quickly. First, on revenue mix and thinking about 4Q versus 1Q, you talked about the headwinds from the food and beverage category in 4Q continuing into 1Q, but yet you did guide to an acceleration. Should we think about that as -- is there a mix component to that, meaning heavier brand adds or heavy brand in 4Q versus 1Q? Or is that all just all DR acceleration and the 3P kicking in? And then second, please, I just hope maybe if you could walk us through a little bit. And you talked about this, Bill, about the value capture versus value creation. Looking at those impressions plus 33 in the fourth quarter, which is really impressive. As you think about throughout '24, not a 1Q question, but throughout '24, do you see that your Pinterest's ability to close that gap over time in terms of see advertising revenue relative to those impression growth? And what are the key kind of steps you're going to take to get that done? Thank you.

Okay. Maybe I'll take the first part of your question, Ken. So it is not mix. It is more acceleration and ongoing acceleration from retail and an emerging contribution from 3P. So we do see continuing headwind from food and beverage, but it is more that it's being even more offset by other positive growth factors that are driving our Q1 acceleration.

And on your question on the value capture versus value create. There's always a lag between these things. Advertisers need to see the performance sustain and you see it flow through into their models and their measurement. And so the thing we feel really great about is that, that value - the value create is the hardest part and has to happen first, and we're seeing that as we drive more users with more intent to those advertisers. So that's really fantastic raw material for us. And we've only really just started the value capture on that. And what comes ahead in that is some of that is just advertisers see that bake into their own models of performance. Some of that is about getting advertisers on to privacy safe measurement. Julia talked about, and we started talking about this Q1 - late Q1, I believe, of last year around adopters of API for conversions as a cohort growing at 30%, approximately 30%, those that had not adopted being mid single-digit decliners. That trend continues as we drive that adoption. So as I mentioned in my comments, the performance doesn't matter to the advertisers if they can't see it through their measurement. So driving that adoption curve on measurement matters quite a lot as well. But we're seeing - again, we're seeing that budget shift toward us continue. We saw that through the year this past year, doubling our growth rate from the beginning of the year to the end of the year. We see further acceleration as we look into Q1 as reflected in our guide. And we think there's a lot more of that to go as we continue to drive through that adoption curve. I hope that helps.

Thank you, both.

Thank you. The next question will be from the line of Colin Sebastian with Baird. Your line is now open.

Thanks, and good afternoon. A couple, I guess, for me as well. Bill, maybe a follow-up on the MAUs. Are you saying that there is a faster conversion of maybe those occasional users maybe quarterly or semiannual users to monthly users? Or are you seeing just users who are new to the platform overall. And then secondly, in highlighting the improvements you've made in relevancy and recommendations of ads and cons in the platform. I know there's a lot of work with machine learning behind all of that and using signals from users. So I guess I'm just curious, how far along do you think you are in really optimizing that level of personalization and hitting those key advertiser objectives like conversion rates? Thank you.

Yes. Thanks for the question, Colin. So on your first question around MAU, we are seeing progress both in bringing new users to the platform. We talked about Gen Z, where we are winning with Gen Z and they are finding Pinterest quite compelling and unique and different from the rest of social media. So we are bringing new users on the platform like our Gen Z examples. But it's also the case that we are deeply engaged with existing users, giving them more reasons to come back to Pinterest more frequently. And I'd say there's two large drivers in that. One is as we make better and better recommendations. That gives them more reasons to come back and giving them more suggested use cases, helping them to broaden out what they think they can do on Pinterest showing them adjacent use cases. So that's working quite well. And then it's the actionability. As I've said many times before, Pinterest had previously solved digital window shopping, but all the stores were closed, actionability was hard. How good was the digital window shopping, so good that people would keep coming back even though all the stores were closed. But as we open those stores, people have good reason to come back more and more frequently. So the MAU acceleration and the growth there is broad-based and it is both bringing new users on the platform, winning with Gen Z, as well as driving depth of engagement with new adjacent use cases and better actionability that caused users to come back more frequently. On your second question, on relevancy. This is where we just get really amazing first-party signal that feeds AI. AI is only as good as a signal upon which is acting. And we get really amazing signal on what…

Thank you. That is all the time that we have for questions today. And with that, I will turn the call back over to Bill for some final closing remarks.

Thanks again to all of you for joining the call and for your questions. We look forward to keeping this dialogue going. As always, we hope you enjoy the rest of your day.

That concludes today's call. Thank you all for your participation and you may now disconnect your lines.